The RBA has lifted the cash rate again, hiking it from 1.85% to 2.35% today.
The cash rate has now been raised five times in succession this year, from a super-low 0.1% in April to today’s rate of 2.35%.
And with inflation forecast to remain high for the foreseeable future, rates will likely increase again this year.
‘The further increase in interest rates today will help bring inflation back to target and create a more sustainable balance of demand and supply in the Australian economy,’ said the RBA today.
‘Global factors explain much of the increase in inflation … the board is committed to returning inflation to the 2–3 per cent range over time,’ added the RBA.
However, the RBA expects to increase interest rates further over the coming months. And it noted that the ‘full effects of higher interest rates are yet to be felt in mortgage payments’.
So, why all the rate rises? They are all about controlling a surging inflation rate.
There is a jobs boom right now, with record low unemployment rates, while retail spending figures are up. Together with global factors pushing up costs at the bowser, the annual inflation rate has spiked to 6.1% (well above the 2–3% inflation band preferred by the RBA).
In fact, Australia’s Bank’s central forecast is for inflation to reach 7–8% in 2022, reduce to around 4% in 2023 and back around 3% in 2024. However, these forecasts aren’t always accurate and can change quickly as global events have an impact.
In fact, Melbourne-based Liberal Party doyen and former federal Treasurer Peter Costello has slammed the RBA’s forecasting, saying it misjudged the economy, with borrowers now facing steeper interest rate hikes because of the Central Bank’s failure to act earlier on surging inflation.
What is true is that it’s been a brutal winter for some Melburnians paying off home loans as banks and lenders pass on these RBA rises.
Mortgage repayments have shot up, with some households paying an extra $770 a month compared to May this year. Today’s rise could mean an extra $1000 a month for some.
Meanwhile, Melbourne house prices are feeling the effects like most cities in Australia, though not by a significant amount, dropping 1.2% in August.
However, two of the big four banks are forecasting Melbourne house prices will drop somewhere between 10–14% by 2023.
It’s a tricky balancing act as the RBA keeps one eye on inflation while trying to minimise financial strain on Australian households and keeping the economy on ‘an even keel’.
‘The path to achieving this balance is a narrow one and clouded in uncertainty, not least because of global developments,’ added the RBA.
However, the RBA noted the continuing strength of the Australian economy, pointing to ‘an unemployment rate which is at its lowest rate in almost 50 years’.
If these rate hikes have you worried, contact Mortgage Broker Melbourne.
We’re one of the most positively reviewed mortgage brokers in Melbourne. And we can help you with tips on how to uncover lower rates, boost your savings, consolidate other debts and take the pressure off increases in household costs.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!